Staying ahead in the world of commodity trading can feel like a full-time job. From keeping an eye on competitors to picking the perfect time to make a move, there are a lot of considerations.
Having expert analysis at your fingertips increases your chances of success when it comes to commodity trading. Competition is fierce, so it pays to be one step ahead.
The professionals at DTN offer high-end tools and insights to support anyone who works in commodity trading. From peripheral support personnel to active traders, we have a solution for everyone in the industry. Reach out to a team member to see how our products serve you.
What Is Commodity Trading?
Commodity trading involves buying and selling raw materials, such as gold or coffee. Hard commodities such as silver and oil are those that require mining or extraction from the earth. Soft commodities are livestock or agricultural products, such as corn.
Much trading in the commodities market involves futures contracts. A futures contract is a legal agreement between two parties to buy or sell an item. The contract specifies what the parties are trading, when the trade will happen, and at what price.
Success in the world of commodity trading involves making an informed decision at the right time. Because timing is so critical, up-to-date data and analysis are essential. Without these tools, you’re working in the dark.
Fundamental analysis refers to the examination of commodities in an attempt to predict their future prices and trends. This analysis relies on supply and demand, which is a simple concept when you trade in real-time.
When there is an excess of supply for the demand, prices go down. When there isn’t enough supply to meet the demand, prices go up. But for futures trading, gauging these ups and downs is much more challenging.
Commodity trading is highly cyclical, so having accurate insights and analysis from several years is crucial. Fundamental analysis relies on looking at those commodities which trade at multi-year highs or lows.
When investors see the prices start to shift after holding somewhat steady for several years, they make their move.
The supply of any given commodity includes any stockpile from previous years and everything produced in the current year. The more product that carries over into the new year, the lower prices tend to go.
The supply of agricultural commodities depends significantly on weather, pest management, and crop health. An extreme weather or pest event can lead to high crop loss that impacts prices. The supply of hard commodities, such as oil, tends to respond to geopolitical events and occurrences that impact consumer demand. The COVID-19 pandemic is a perfect example.
Demand for commodities refers to how much of a product people are consuming at a particular price point. For most commodities, there is a cyclical nature to the demand. For example, the need for heating fuel in North America is higher during the winter than during the spring.
The cycle of supply and demand is integral to pricing. When a commodity’s prices are high, production and supply will increase. Producers want to get in on the high price point. But higher prices also create lower demand, typically. So if there is an overproduction of a commodity, the price will likely drop again.
Technical analysis for commodity trading relies on prior volume or price information rather than supply and demand. Traders who utilize technical analysis use price charts and graphs to help them predict future prices.
Day traders often use technical analysis in their work, while traders who take a longer view tend to use fundamental analysis. In reality, most traders use both methods at least some of the time.
So How Do I Know What Will Happen?
Nobody can guarantee what any given commodity market will do. But by implementing powerful analysis tools and techniques, you can spot trends and changes that could indicate price movements.
With historical and real-time data, you can be ready to act with confidence.
Here is an example of using fundamental analysis in grain markets. Let’s say you notice that soybean supplies are at a four-year high. And your research indicates that farmers planted an extremely high amount this year.
You would likely predict that there is due to be a massive surge in supply, which tends to push prices down. This tendency would inform your trading decisions.
For trading based on technical analysis, you will need access to charts, studies, and real-time spot pricing. Whether you use fundamental or technical analysis or a combination of the two, you need powerful tools to provide the data.
How Can Timely Analysis Keep You Competitive?
Anyone who invests in commodities needs up-to-the-minute news reports, in addition to other market data.
Extreme weather events or significant global political events can quickly impact supply, demand, and pricing. Any software solution that traders use in their business should include access to real-time news and weather reports.
Depending on which commodities you work with and whether or not you do day trading, you will need specific features in your analysis tools. Choose something that includes any of these features that apply to your situation:
- Real-Time Tick Data
- Robust Weather Forecasts
- Cloud-Based Technology
- Desktop and Mobile Capability
- Cash Grain Bids
- Quote Sheets
- Historical Data
- Detailed Charts
When you have all the pertinent data at hand, you can anticipate changes before they occur, allowing you to boost your profit. Timely analysis lets you work strategically and confidently.
DTN Tools Serve You with Expertise
Commodity trading is speculative, by its very nature. But that doesn’t mean you have to be stuck with “hopeful guessing” as your only tool. At DTN, we have the solutions you need to make informed and strategic market predictions.
Users can access up-to-the-minute analysis and updates to keep them informed and profitable. You’ll have the tools to stay ahead of your competition through quick and decisive action.
Reach out to a DTN expert today. You’ll learn how our products can give you the edge you’re seeking for your commodity trading business.